China: A Few Words On CPI Reweighting

The headline of this report on Bloomberg seems to suggest that CPI was not as high as expected because of a weighting change.  And it quoted a Deutsche Bank economist saying that “any slowdown in consumer-price gains may only reflect a reweighting”.  It suggests that the decrease in weighting in food is to blame, because food accounted for a third of the basket of goods.

Here’s the actual change in weighting:

Residence: + 4.22%
Food: –2.21%
Tobacco and Alcohol: –0.51%
Clothing: –0.49%
Household Facilities, Articles and Service: –0.36%
Health Care and Personal Articles: –0.36%
Transportation and Communication: –0.05%
Recreation, Education and Culture Articles: –0.25%

So if food previously accounted for a third of the whole consumer prices index, it is hard to see why a 2 per cent cut in the weighting would make a very big differences.  In fact, the National Bureau of Statistics said the CPI inflation for January 2011 would have been 4.918% over a year ago using the old weighting, vs. 4.942% using the new weighting.  On a month-on-month basis, the inflation would have been 1.07% vs 1.021% using new weighting.  Thus it is hard to see why the reweighting is making any big difference.

My take on January Inflation in China

China: A Few words on CPI Reweighting
Also sprach Analyst – Investment Analyses, World Economy & Finance

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